(Lead image: from FTChinese.com) "Some of the most powerful financial institutions on Wall Street are stepping up their presence in China's fund management and other financial services industries, in hopes of profiting from the country's opening capital market." A recent Financial Times report opened with this observation.
Supporting its view are the following facts: Last month, BlackRock, the world's largest asset manager, received approval to form a joint venture with a Chinese state-owned bank.
Days later, rival asset manager Vanguard said it would move its regional headquarters to Shanghai.
Citigroup became the first U.S. bank to obtain a fund custody license in China.
Details also emerged of JPMorgan's plan to buy out its local partner's entire stake in a Chinese joint venture fund company.
Also echoing the FT report were figures released by the China Banking and Insurance Regulatory Commission (CBIRC) on its website on August 22 in a Q&A: Since 2018, the CBIRC has approved nearly 100 various institutions to be established in China by foreign banks and insurers, including wholly foreign-owned or foreign-controlled insurance companies and wealth management companies.
In the first half of this year, a number of renowned foreign banks and insurance institutions from around the world were approved for establishment. For example: BlackRock Financial Management, Inc. (U.S.), CCB Wealth Management Co., Ltd., and Fullerton Management Pte Ltd (a subsidiary of Singapore's Temasek) jointly set up the foreign-controlled BlackRock CCB Wealth Management Co., Ltd. in Shanghai (this is the first item mentioned in the FT report).
Chubb Insurance Group increased its stake in Huatai Insurance Group to 46.2%, becoming its largest shareholder; three foreign-invested insurance companies with Sino-French, Sino-Australian and Sino-British joint ventures also set up dedicated asset management companies.
Korean Reinsurance established a reinsurance branch in China.
About ten days later, the CBIRC website issued another announcement approving Japan's Ueda Yagi Tanshi Co., Ltd. to establish a wholly owned money brokerage (China) company in Beijing.
Why are financial giants, acting in unison, so bullish on the Chinese market and stepping up their entry pace?
First, there is no doubt the enormous appeal of the Chinese economy itself.
The world's largest and most rapidly growing middle-income group, the most complete range of industrial categories, plus the development space left by Chinese households' relatively traditional wealth management methods for future asset allocation (Goldman Sachs estimates that only 7% of Chinese household assets are invested in stocks and mutual funds, compared with 32% in the U.S.; two-thirds of Chinese household assets are in real estate, and nearly one-fifth in cash and deposits) have made "managing Chinese capital globally a 'Holy Grail' for foreign companies."
Stewart Aldcroft, chairman of Citigroup Trust Asia, a Citigroup unit, even said: "Look, money is everywhere (in China). Is there anywhere else in the world with such opportunities and such a large amount of assets to manage? Frankly, nowhere else."
Though the words are somewhat exaggerated, they reflect China's weight in investors' minds.
Second, China's financial industry has clearly accelerated its opening-up.
Since 2018 alone, the CBIRC has introduced 34 opening-up measures for the banking and insurance industries. At present, relevant regulatory amendments are basically complete, the regulatory process is continuously improving, approval speed has greatly accelerated, and the level of opening-up has steadily improved — the number of new foreign-funded institutions in China has increased notably, with a host of specialized institutions landing one after another.
Take BlackRock as an example. According to the CBIRC announcement: BlackRock Financial Management holds 50.1%, CCB Wealth Management 40%, and Fullerton Management Pte Ltd 9.9%.
The company approved this month for Ueda Yagi Tanshi Co., Ltd. to establish in China will become the first wholly foreign-owned money brokerage in China, and the sixth money brokerage approved since 2010. Motohiko Ueda, the 90-year-old chairman of the company, said it was "a dream fulfilled after many years."
At the just-concluded China International Fair for Trade in Services (CIFTIS), Beijing's Xicheng District Financial Street released the new "Ten Measures for Financial Opening" policies, clearly stating that it will fully undertake national financial reform and opening-up tasks, and support foreign institutions of all types — banking, securities, insurance, funds, futures, trusts, wealth management, etc. — to initiate or participate in establishing financial institutions in Financial Street, or invest in existing financial institutions there.
The Financial Times said: "The spate of new moves comes as Beijing takes steps to liberalize the country's huge but heavily protected capital markets."
Third, in the post-pandemic era, China's economy resumed first, demonstrating a resilience that has boosted investor confidence.
U.S. CNBC previously reported that industry surveys showed China's services sector maintained its recovery momentum for a fourth consecutive month in August, with companies expanding hiring for the first time since January. A Goldman Sachs report released on the 11th noted "China's overall advantage in manufacturing remains unchanged," with only labor-intensive industries affected. According to the latest market and economic outlook from Vanguard, the world's largest public fund management company, the U.S. economy will contract by 7%-9% in 2020, while China's economy will grow by 1%-3%. A Deloitte forecast projects that assets under management in publicly registered funds could reach $3.4 trillion by 2023. Separately, consulting firm Casey Quirk estimates that by 2023 China will overtake the UK to become the world's second-largest fund market.
If the pandemic has brought many risks and pressures, the Chinese market, having passed the test of the epidemic, has increasingly shown its irreplaceable appeal.
Finance is the core of a modern economy: "When finance is vibrant, the economy is vibrant; when finance is stable, the economy is stable." Finance and the economy complement and thrive together: "When the economy prospers, finance prospers; when the economy is strong, finance is strong."
China's economy has a solid foundation, sufficient resilience and broad prospects, combined with continuously improved services. All of these are the fundamental driving forces prompting global financial giants to break through political barriers and head for the Chinese market.
Jamie Dimon, chairman and CEO of JPMorgan Chase, said in a Bloomberg interview in Beijing in 2018 that JPMorgan would "build a century-old business here." He said: "One day, you will likely see a tower here just like the one we have in New York." That day may be in the not-too-distant future.